The Law Firm Disrupted: This Startup-Focused Firm is Embracing AI. Can It Maintain an Edge on Larger Rivals?

The tech industry is built on the premise that the ways we’ve historically approached–well, pretty much everything–are ripe for improvement. A corollary to that observation is that law firms aiming to serve tech startups offer a valuable window into the future of the business.

Granted, sometimes that window looks out onto a brick wall. That was the case with Atrium, the hybrid law firm/legal tech outfit that raised $75 million in venture capital to serve the tech community before it spectacularly imploded in 2020.

But the perception that Big Law is not ideally situated for servicing these tech clients continues to fuel new aspirants into this space, even if they don’t necessarily come with the same financial backing.

Zack Shapiro, one of two co-founders of Rains, is dismissive of what Big Law’s dedicated practices for startups bring to the table. In addition to calling them slow and expensive, he claims it is “not always actionable legal advice to get a lengthy memo that was prepared by an associate who has never been in business, doesn’t really understand the underlying technology and [it’s just really not the right product for someone who’s trying to build a company.”

Solo practitioners, the other option, albeit less common, are also flawed, thanks to their limited resources and inability to scale, Shapiro maintains.

Atrium’s purported answer was, on one side, to leverage technology to make the production and handling of legal documents more efficient, and on the other side, to revolutionize pricing with a flat-fee plan. But in the end, with hindsight, its outsider founder Justin Kan concluded that building a services business was a mug’s game. “It’s more work to manage everyone and the reward isn’t there at the end of the day,” he said on Reddit after the company collapsed.

Shapiro, meanwhile, is an insider. He had two federal clerkships under his belt as well as time as an associate at Davis Polk & Wardwell before he caught the tech bug, launching an e-commerce startup before starting a solo practice. Same for his partner Euwyn Poon, an M&A associate at Simpson Thacher & Bartlett before he built a VC-backed scooter company that he ultimately sold to Ford.

Another difference is that technology has evolved rapidly since Kan pulled the plug on Atrium, particularly via the current AI boom. Shapiro admits that when the website for his solo practice was venturecounsel.ai just a few years ago, it was “a bit aspirational.”

But the large language model (LLM) technology underpinning products like GPT-4 is a game changer. Shapiro, borrowing from an analogy he heard on a podcast, compares it to the advent of refrigeration technology. “The opportunity here is not to be the refrigeration company, it’s to be Coca-Cola,” he says. “It’s to be the company that uses this new technology to be able to deliver its existing products and services.”

For the Rains lawyers, unlike Kan, services are the real deal and technology can make a massive difference in how they get delivered. AI, at the moment, may not have real value in coming up with plausible legal theories, says Shapiro. He tried: “Its answers were pretty bad.”

But if strategic decision-making isn’t being disrupted by this technology, the real opportunity is in knocking out documents, freeing young lawyers in particular to take on elevated roles at an earlier point in their careers. That’s an opportunity not just in his firm, but in Big Law as well. (All this depends on whether they avail themselves of the technology, and incur the short-run revenue loss from billing out associates for scut work in favor of the long-term gains from delivering greater value to clients and freeing talent from drudgery.)

Because in the end, Shapiro anticipates more legal work, not less, as a result of the AI boom. One of his clients has already received a cease-and-desist order openly created by a chatbot and he suspects even more are being generated without this disclosure. With a flood of legal challenges launched at minimal cost, businesses will need real lawyers, with their strategic thinking skills, to identify which threats are real and which can be ignored. Likewise for deal work. If the advent of word processing allowed contracts to burgeon in length, AI could make it even easier to add fresh clauses and addenda. Who’s going to have to make sense of all that added complexity after the fact?

“This could end up an arms race,” Shapiro predicts.

Source → Law.com